NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Is There a Role for Monetary Aggregates in the Conduct of Monetary Policy?

Arturo Estrella, Frederic S. Mishkin

NBER Working Paper No. 5845
Issued in November 1996
NBER Program(s):   EFG   ME

We examine the potential policy role of monetary aggregates by attempting to use them as effectively as possible in the analysis of empirical relationships. We consider three possible roles: as information variables, as indicators of policy actions and as instruments in a policy rule. These require successively stronger and more stable relationships between the aggregates and the final policy targets. Our results show that in the United States since 1979, the monetary aggregates fall considerably short of those requirements, and results with German M3 are hardly more favorable. We also investigate whether empirical relationships are not reflective of causal relationships because of the use of these variables in counter cyclical policy. The results are reasonably consistent with that notion in the case of interest rates, but not in the case of the aggregates.

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Document Object Identifier (DOI): 10.3386/w5845

Published: Journal of Monetary Economics, Vol. 40, no. 2 (1997): 279-304. citation courtesy of

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